Update on the Attorney Meeting
In a previous post updating my oil investing, I mentioned I was going to see an attorney.
One of my partners [with whom I've deal a couple of smaller real estate deals] and I met for just over half an hour with an attorney. We’ve used this attorney before and he’s really sharp [not to mention expensive].
He said it would be easier to file under SEC regulation 504, which provides exemption from regulation requirements. In that only accredited investors are usually allowed into such investments. It is possible to have non-accredited investors but you then need to disclose so much bad stuff that they’d probably shy away anyway, plus you’re limited to only 35 of them, which doesn’t make the preparation costs of all the disclosures even worth it. [Unless you want to do full-blown offering which we definitely don't want to becuase of the cost involved.]
If we have only accredited investors and we’re raising under $1 million, we only need a subscription agreement and questionaire[stating that the investor is accredited] and a brief offering circular. [We don't even need to mention all the risks. After all, the government expects accredited investors to know everything about investing. How else could a person even become accredited, what with the government trying to tax the accreditedness out of them!]. We may not even need a Private Placement Memorandum which is a thick book full of disclosures.[disclosures are nothing but worst case suggestions about how you're going to lose your money.]
I asked my attorney what happens if a non-accredited investor claim’s to be accredited investor just to get in. He said if we know that a person is non-accredited then we cannot accept their money at all. [Although they face no penalties for lying other than they can't go crying to the SEC saying we didn't disclose all of the risks!]
We’re not supposed to publicize this to people we don’t know, so if you don’t already know who I am, don’t even ask me for more info! I’m only posting this for information purposes and to give other investors an idea of whats involved. Incidentally, Kiyosaki’s book, Retire Rich, Retire Young
Lets see how things work out. One things for certain, whether or not we make any money, our attorney sure will!
Here’s a somewhat related and very interesting topic on Starting Your Own Hedge Fund.
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June 1st, 2006 at 11:59 am
Wow!. I learn something everyday by reading your post.
You could do this for any type of investment to raise capital.
Very interesting
June 2nd, 2006 at 3:37 pm
hmm so the people you wanted to invest with you are accredited investors? I read recently also that in order to charge incentive fees in the US the investors have to have a minimum net worth of $1.5 million.
Is the issue here the charging of fees to investors? If you just want to pool funds together to invest there must be some simpler approach?
June 3rd, 2006 at 6:47 am
well we not taking any sort of fee. whatever we make is performance based and our attorney said $1mill networth or 200k/yr salary is credited.[basically run-0f-the-mill acredited rules]
we still need full disclosures even if its non-accredited friends and family.[although without it they probably wouldn't sue us if they lost money so it wouldn't matter]